Archive for 2007

The Easy Option – Example BOBJ

Foundational model of

Options Sage Submits:

 

Although many of our members have been trading for years and are highly sophisticated, this educational segment will build from the foundation levels recognizing that some of our members are relatively new to the options game and, while it's all quite simple when you know how - you do need to know how!  There is nowhere better to begin then with the "easy option" – the long call!

 

The long call option is probably the best understood of all the options because in many ways it is so analogous to stock ownership.  When we buy a stock and it rises we can sell the stock and profit. When we buy a long call and the stock rises, we can sell the call and profit too!  

 

Here at Phil's Stock World we tend (OK, not tend, almost always) to use options as leverage on positions.  While options are inherently risky, they do provide the advantage of allowing the average investor to be able to diversify his/her virtual portfolio across a large number of positions, limiting the capital at risk in each one (when applied with good money management techniques!).

 

Let's take a look a BOBJ, a stocks Phil likes for Monday.  The company has beaten estimates each of the last 4 quarters, the last by 20%, and is expected to report a strong Q4 on Tuesday (.56 vs .42 last year).  The underlying strength in Business Objects can be seen in that they have no debt and have thrown $160M of cash into the bank this year alone leaving them with $518M as of last quarter so the current p/e of 49 is deceiving on this $3.6B company.

 

 

At $38.70 they are trading well off  last year's high of $43 and 25 out of 41 analysts tracking the stock don't like it.  That plus the fact that there's been a rumor that ORCL is interested in buying them, which may have irrationally pumped up…
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Weekend Ramblings – In Progress

 

Trader Mike put up a nice video on the concept of Web 2.0 that is basic but nice to watch.  It kind of hammers home the point of what we're trying to accomplish here, a collaborative trading community that harnesses the power of our collective experience.

One thing I realize in trying to write a book is what a huge step backwards it is to have to put words on a linkless page.  I predict right now that the successful evolution of EBook devices will lead to a new Renaissance of reading and writing as the average person becomes able to convey hundreds of pages of data and concepts in a simple 12-page article that, in turn, references thousands of other pages that, in turn references thousands of others, quickly putting millions of hours of research work in the hands of anyone who should think to ask a question.

Just as the 1447 invention of the printing press did not instantly wipe out handwritten manuscripts or oral communication, Wikis and blogging are not going to immediately relace "Mainstream Media" but, over time, it is clear that IREM (Instant, Robust, Electronic Media) will force the MSM to reexamine its place in the world.

We (a group of fellow bloggers at Information Arbitrage) had an altercation recently with the Wall Street Journal over a hack peice that was written attacking Blogging, Bloggers, the "imbeciles" who read blogs and anything else that doesn't generate revenue for the WSJ (written by and assistant editor, of course).  I won't get back into it but you can read mine and others' commentary here.

 

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Tech Guru Robert X. Cringly (I always use the X because it's cool) is topping my 2015 $3,000 price target on Google by going to $4,000!  He's uncovered a covert plot by Google to accumulate all the spare bandwidth on the planet as a prelude to moving against your local service providers. 

Extrapolating BitTorrent traffic to it's logical conclusion, Cringly reasonably estimates that Google has figured out that ISPs have underestimated bandwidth needs by a factor of 30.  He concludes: "Those ISPs will be faced with the option of increasing their backbone connections by 30X, which would kill all profits, OR
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Monthly Mop-Up

 

Well, we got the new year off with a bang!

Despite a very tough 3rd and 4th week of the month and a very tough purge of many oil and builder plays that just were not working, we managed to finish the month with a 65% average gain on 144 positions closed on 18 average days held.  While this was way down from the first two weeks of the month where we averaged 100%, it's still a fairly respectable total!

Always note that that figure is based on the adjusted capital at risk at the time of closing and is not a virtual portfolio increase.  And there were indeed many adjustments made this month, we doubled down on 37 positions, obviously because they were in trouble, and the strategy worked out on half of them.  16 times, we actually lost more money after the double (which reduces the average basis by 25%) but, of the 21 times that upping our bets improved our positions, 10 were doubles or better and another 6 turned into greater than 50% gains.

Our worst plays were generally oil and builder plays, both of which whipsawed us right after an entry, meaning we had (or should have had) very small positions, which we chose to add to rather than take our 20% stops and go home.  As I said during the week, fundamentals were thrown out the window in both of those sectors and we should have been riding the waves instead of trying to fight the tide.

We picked the wrong day to enter TSO $65 puts at $1.33 (1/16) as it went up from there but we took a second round anyway (the cheapest kind of DD we have) at $1.10 but it went up and up on us until we had to finally be glad to get a nickel back (down 96%) after a huge 1/31 earnings spike.

MOT killed us on our first attempt to enter the Jan '07 $20s for $1.15 (12/14) but I still believed in it enough to take a second round for $1 but we gave up on 1/18 at .05 (down 95%) as we had called a bottom the week before and decided to move to leaps.  Thank goodness because the much larger Jan '09
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Friday Flatline

That was just fine!

Nothing bad happened, most of the Dow’s losses were minor with my own picks of MO and MSFT as 2 of the three biggest losers of the day.  BA and AA also dropped a point but no one who’s owned those shares for more than a week is complaining. 

It’s funny how the transports were able to ignore a $1.72 jump in oil.  Maybe it was because that entire $1.72 was thrown onto the boards in the last 35 minutes of trading in a blatant attempt to headline a rise of oil back to $59 into the weekend.  Nobody thinks this is real anymore, now the oil traders are just fooling themselves - and what a pit of fools they look like, swapping 387M barrels between March and May while only actually paring 7M barrels off the total order.

Our week ending crude contract orders were:

  • March Open: 353K (-33K) $59.02 (+$4.98) 
    • 282K contracts traded today.
  • April Open: 135K (+22K) $59.73 (+$4.92)
    • 79K contracts traded today. 
  • May Open: 59K (+4K) $60.48 (+$4.99)
    • 24K contracts traded today.
  • June Open: 97K (+1) $61.11 (+$4.99)
    • 15K  contracts traded today.

You can see the level of farce the have attained when you look down the list of the NYMEX contract closures and see massive discrepancies between the price they forced it to and the price barrels actually trade at.  For example, the last trade on the October contract was $61.26 (8K traded) but they jacked up the "ask" price to $63.02.  This pattern is repeated in most of the longer months where the gains are paper only with no actual trading interest in paying these prices. 

Why is this kind
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Friday Virtual Portfolio Moves

Posted February 2, 2007 at 9:43 am | Permalink (Edit)

FDX flying with an upgrade.

  • I’m putting a stop in on 1/2 the July $115s at $7 with a .40 trail
    • that was a big bet to make up for the loss on the July $120s
    • (I rolled them out into the lower call on the 30th) and the mission is accomplished!
Posted February 2, 2007 at 9:51 am | Permalink (Edit)
  • Taking GOOG Mar $470 puts for $12 to protect my calls. 
    • Will sell Febs if it starts to come back
    • Obviously, as soon as I can get more than $12 for the $480 puts I’m going to set a tight stop!

Posted February 2, 2007 at 10:23 am | Permalink (Edit)
Copper broke $250 – watch for a dump in gold!
  • BAB – DD on Mar $100 puts at .65
  • taking Mar $105 puts for $1.55
    • this is a hedge on high oil posiition for me, plus I think it should drop in its own right.
Posted February 2, 2007 at 10:46 am | Permalink (Edit)
  • ISE – Jan $45s are $7.30
  • sell the Feb $45s on good news (or the $40s on bad news!)
Posted February 2, 2007 at 10:46 am | Permalink (Edit)
  • RIMM – taking out 1/2 my positon by buying out caller at $3.30, selling my calls at $7.20
Posted February 2, 2007 at 11:38 am | Permalink (Edit)
  • Out of the QQQQ $45s for .25
Posted February 2, 2007 at 12:50 pm | Permalink (Edit)
  • GME Mar $55s are $1.90
Posted February 2, 2007 at 1:28 pm | Permalink (Edit)
  • LVS Jan $110 puts for $17
  • sell the Feb $105 puts for $4.30
Posted February 2, 2007 at 1:46 pm | Permalink (Edit)
  • Had to add to my EOG $65 puts at .45
Posted February 2, 2007 at 2:22 pm | Permalink (Edit)
  • WENNF WEN $30 puts, just got them for .10 on awful earnings
    • craps roll
Posted February 2, 2007 at 2:55 pm | Permalink (Edit)
  • Half out of WEN puts at .20 of course, stop on rest at .10
Posted February 2, 2007 at 2:57 pm | Permalink (Edit)
  • WEN $30 puts  - I lost interest and took .15 to close all
    • too many buyers down there.

Posted February 2, 2007 at 3:41 pm | Permalink (Edit)

  • CVX Mar $70 puts at .55
  • EOG Feb $65 puts at .45

 





Groundhog Day!

It’s Groundhog Day!

While the movie "Groundhog Day" is one of my all-time favorite films our foreign readers would do well to remember that we live in a country where thousands of people actually do gather each February 2nd in a small town in Pennsylvania where a dozen men in tuxedos pull a rodent out of a box to see how much longer winter will last based on whether or not it sees it’s shadow.

Perhaps the little ritual itself isn’t that strange but how seriously people in this country take it is downright weird!

In the movie, Bill Murray is forced to live the same day over and over, much like the trading range the markets have been stuck in.  There’s nothing wrong with being in a trade channel if you learn to recognize the tops and bottoms – that’s why it’s so important we watch our breakout levels and don’t overcommit as we near the tops of the range.  As I often say, "if there’s a real market rally, we have all the time in the world to participate.

Asia is back at the top of their trading range with the Hang Seng back at 20,563 and the Nikkei is retesting 17,600, both indices a good 50% ahead of the Dow over the past 3 yearsIn a true global economy, either they are very overvalued or we are very undervalued and I think that if you accept the fact that the economy IS truly global, then it would follow that the US markets are a global bargain.

The Japanese consumers saw their shadow and are spending 2% less as they like to (gasp!) save their money!  I’m not actually quite sure what this "saving" thing is, but we’ll get some researchers on it and get back to you…  This is not bothering the Japanese markets as they see themselves as part of the global economy and the growth of their neighbors is seen as a good thing.  Asian growth is portrayed as some kind of threat to America and traders and analysts alike are stuck in Groundhog day 1946 (world war) or 1966 (cold war) or 1986 (Japan was kicking our ass) as the shadow of a global competitor sends us running back into our holes.

As long as we continue to see Europe and Asia as competitors and not partners, we will be forced to relive the same trading…
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Thrilling Thursday Wrap-Up

Now that’s what I call follow through!

[ecocharts-napm.gif]

We ignored a sad 49.3% ISM report (below 50 is actual contraction) as it was 49.9 in November anyway.  "The manufacturing sector failed to grow in January" and "the signals are clear that there is relatively little change taking place in the sector, as the [manufacturing index] has averaged 50.5% for the past four months," said Norbert Ore, who directs the ISM manufacturing survey. "Manufacturing lost momentum in the second half of 2006, and is starting 2007 in a less than robust fashion," Mr. Ore added.

 How can this be good for the economy?  Well the results also show the inventories index is at the lowest level since February 2002.  Declining inventories are running right into a .5% rise in personal income as all these employed people are starting to get raises yet the PCE remains VERY LOW.

Historical comparisons are tough because we had other worries on our mind in February 2002 but what we do know is we had an amazing rally pretty much from March 2003 to today!

The markets were certainly happy about, the Dow tacked on another 50 point gain to another new record with big gains (again) from AA, BA, CAT, DD, HD, PG, UTX and XOM and big bounce backs from INTC, MRK,  & PFE.  We had a very strong finish and even the Nasdaq finally joined the party despite Google acting like a big baby sitting in the corner and dropping 20 points.

It doesn’t get much better than that!

The finish was so strong in most of the indexes that it was a shame they rang…
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Thursday Virtual Portfolio Moves

Posted February 1, 2007 at 9:44 am | Permalink (Edit)

OK – let’s remember right now that our Google spreads from yesterday are up 300+% – not taking that profit now is a major, major risk, as much so as making a brand new trade.

I am taking half off the table now:

  • GOOG Mar $520s out at $9.50
    • taking out $510 callers at $6.
  • GOOG Mar $530s out at 7
    • taking out $520 callers at $3.80

GOOG Mar $480 puts HOLDING, hoping for a bounce but I will take out my putters below $494 and I will get out if it gets back over $495 after that.

Posted February 1, 2007 at 10:18 am | Permalink (Edit)

TIE – the Boeing Buddies are almost as reliable as the Valero rule – I can’t believe it took so long!

  • That being said I am rolling by selling the Jun $25s for $8
  • Buying the Jun $35s for $2 to lock in half my profits.

 Posted February 1, 2007 at 10:32 am | Permalink (Edit)

  • EOG $65 puts at .50 – Risky but fun. 
Posted February 1, 2007 at 10:39 am | Permalink (Edit)
  • Now with a .20 trail stop on my $470 puts
    • currently at $470 – that pays for the calls
  • stopping out of the $530 calls at $1.
Posted February 1, 2007 at 10:44 am | Permalink (Edit)
  • DD on GOOG $530s at $1.40
    • stop on whole position at $1.15
Posted February 1, 2007 at 10:48 am | Permalink (Edit)
  • More MO $90s at .25
    • out at .40 on any pullback.
Posted February 1, 2007 at 10:56 am | Permalink (Edit)
  • Taking the QQQQ $45s for .30 as a fun proxy on a Google recovery (Apple too).
Posted February 1, 2007 at 11:04 am |


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Follow Through Thursday!

 

 

 

Today is a biggie!

Will we get some follow through or will we further define the upper limits of our trading range?  Yesterday was huge but we may only back at the apoapsis (the "highest" point of the orbit and nearing a turn back towards market neutrality).

New members can review the original article on "Stock Market Physics" to get an idea of what I am talking about but let's all keep in mind how difficult it is to break orbit as any of our engines misfiring will force us to abort and take another pass back to the periapsis (the "lowest" part of the orbit).

Asia was ready to blast of this morning as the Hang Seng and the Nikkei both more than made up for yesterday's losses.  The strong US economy is good news for them as we sure don't buy cars and electronics that are made in this country.  Good thing we took out our FXI $107 caller yesterday for $1.70 – anytime you make 50% on a position like that it's good to take it but I think we may bounce all the way back to $106 today.

In fact, it was a pretty good call at 2:22 when I said: "Taking out my FXI $107 caller at $1.70, buying FXI $107s for $1.70 for myself!" as it seemed a pretty obvious way to play the US rally. 

Europe is also in a chipper mood today with 1% gains across the board so it's all up to us to keep the ball rolling today.

We need to fire all engines to make a permanant move to a higher orbit (trading range) otherwise we still risk a very real danger of crashing and burning:


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The Goldilocks Entry

I was speaking to someone last night about setting up a fund and he asked me what the optimum amount was to set up a virtual portfolio and I told him you have to first come up with a strategy and work your way backwards from there.

Let’s take a look at my strategy and what my own logic is for portioning a trade:

It is very important to have realistic expectations going into this.  The returns we have gotten over the past couple of months have been astounding but that is luck – thinking otherwise can get us into big trouble!  The short-term virtual portfolio, which we mainly track, is meant to be the fun one, that is meant to be played with a small percentage of a sensible virtual portfolio.  For larger investments the long-term plays, where we buy leaps and sell puts and calls against them, are the way to go.

Diversification is also very important.  I make a lot of picks because not all picks are right for all people but what is important is that you have a diversified mixture of sectors and no less than 25% (no matter how bullish/bearish the market is) in puts or calls.  Jim Cramer’s game "Am I Diversified" is, I think, his greatest contribution to novice investors.  No more than 20% in a single sector!!!

It’s actually more complicated than that as I will take into account that a DOW call is like an oil put, as they both work off the same underlying factor (the price of oil and gas) so DOW calls do noting to protect my oil puts – they are actually the same bet!  So, if I have enough money for just 10 trades, at least 3 of them will be either puts or calls and no more than 2 of them will be in the same sector.

While it’s fun to imagine you can double your entire virtual portfolio in a month by throwing caution to the wind, you also risk losing it and any action that takes a lifetime’s worth of work (because that’s how long it took you to get the money you now have) and risk it all on a single month is not a good plan!  As I just wrote in my weekend post, Babe Ruth wasn’t great because he hit a lot of home runs, Babe Ruth was great because he batted .341
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ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...



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Phil's Favorites

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...



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Digital Currencies

Transparency and privacy: Empowering people through blockchain

 

Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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